Tax Deductions/Allowances

Businesses can enjoy 400% tax deductions/allowances on up to $400,000 of their expenditure per year in each of the Six Qualifying Activities, instead of the 100% deductions/allowances under the existing tax rules. The 100% deductions/ allowances is usually termed "base deductions/ allowances", while the additional 300% deductions/ allowances is usually termed "enhanced deductions/ allowances".

Amount of Tax Deductions/Allowances

The annual expenditure cap of $400,000 may be combined as follows:

Year of Assessment (YA)

Expenditure Cap per Qualifying Activity*

Tax Deduction per Qualifying Activity

2016 to 2018
(Combined)

$1,200,000

$4,800,000
(400% x $1,200,000)

2013 to 2015
(Combined)

$1,200,000

$4,800,000
(400% x $1,200,000)

2011 and 2012
(Combined)

$800,000

$3,200,000
(400% x $800,000)

Tax Deduction under the PIC+ Scheme

As announced in Budget 2014, from YAs 2015 to 2018, qualifying businesses can enjoy 400% tax deductions/allowances on up to $600,000 (instead of $400,000 as mentioned above) of their expenditure per year in each of the Six Qualifying Activities under the PIC+ Scheme.

* Only if you are carrying on a trade or business for the relevant YAs. Otherwise, the combined cap is reduced accordingly.
# The combined expenditure cap of $1,400,000 is only applicable for YA 2015 as the additional expenditure cap of $200,000 ($600,000 - $400,000) is not available for YAs 2013 and 2014.

Claiming Tax Deduction

Businesses claiming tax deduction in their Income Tax Return will have to claim it by the filing due date for the relevant YA.

Due Date for Paper Filing

Due Date for e-Filing

Sole-Proprietorships and Partnerships

15 Apr

18 Apr

Companies

30 Nov

15 Dec

The qualifying expenditure for PIC benefits is the expenditure amount minus the grant or subsidy by the Government or any statutory board.

For a GST-registered business, the qualifying cost incurred for the purpose of claiming PIC should exclude any GST that is claimable as input tax.

However, for a non-GST registered business, the GST component can be included as part of the qualifying cost.

Cash Payout Option

Eligible businesses can apply to convert up to $100,000 of their total expenditure for each YA in all the Six Qualifying Activities into a non-taxable cash payout, instead of claiming tax deduction. The cash payout rate is at 60% of the expenditure incurred for YAs 2013 to 2018.

This option may be more beneficial for businesses that may be cash-constrained.

Amount of Cash Payout

The maximum cash payout is calculated as follows:

Year of Assessment (YA)

Expenditure Cap for All Qualifying Activities

Cash Payout Rate

Maximum Cash Payout

2016 to 2018
(Cap cannot be combined)

$100,000 per YA

60%

$60,000 per YA
(60% x $100,000)

2013 to 2015
(Cap cannot be combined)

$100,000 per YA

60%

$60,000 per YA
(60% x $100,000)

2011 and 2012
(Combined)

$200,000*

30%

$60,000
(30% x $200,000)

* Only if you are carrying on a trade or business for the relevant YAs. Otherwise, the combined cap is reduced accordingly.

Conditions for Cash Payout

Businesses eligible to apply for the cash payout are sole-proprietorships, partnerships, companies (including registered business trusts) that have:

Incurred qualifying expenditure and are entitled to PIC during the basis period for the qualifying YA;

Active business operations in Singapore; and

At least three local employees (Singapore Citizens or Singapore Permanent Residents with Central Provident Fund (CPF) contributions) excluding sole-proprietors, partners under contract for service and shareholders who are directors of the company. This is also known as the "three-local-employee" condition.

Put the PIC IT and Automation equipment to use, for PIC cash payout claims relating to YA 2016 onwards. This applies only to businesses making PIC cash payout claims on such equipment. This is also known as the "in-use" condition.

Incurring Qualifying Expenditure

An expense is incurred when the legal liability to pay has arisen, regardless of the date of actual payment of the money. For more information and examples of when an expense is considered incurred, please refer to Examples of When an Expenditure Is Considered Incurred (109KB).

Three-Local-Employee Condition

A business meets the three-local-employee condition if it makes CPF contributions for at least three local employees in the relevant month(s). However, a business will not qualify for PIC cash payout if the individuals are “employed” just for headcount purposes in claiming PIC cash payout, regardless of whether that individual is “employed” on a full-time or part-time basis from the business' perspective.

From YAs 2011 to 2015, the CPF contributions must be made for three local employees in the last month of the relevant financial quarter/ combined financial quarters.

From YAs 2016 to 2018, the CPF contributions must be made for three local employees in the last three months of the relevant financial quarter/ combined financial quarters.

Local employees refer to Singapore Citizens and Singapore Permanent Residents with CPF contributions but exclude sole-proprietors, partners under contracts for services and shareholders who are directors of the company.

From YA 2014, for the purpose of fulfilling the three-local-employee condition, individuals deployed under a centralised hiring arrangement# will be regarded as employees of the business where these individuals are deployed, subject to the following qualifying conditions:

The claimant is able to produce supporting documents on the recharging of employment costs by a related entity, in respect of employees working solely in the claimant entity.

The employee whose cost has been recharged will not contribute to the requisite headcount of the related party (which bore the upfront manpower costs).

# Some examples of centralised hiring arrangements include:

Deployments where the HR function of a group of companies is centralised in a single entity, with the staff costs (including training expenditure) allocated to the respective entities.

Or a secondment, where employees are seconded to work for a related company. Once seconded, the staff costs are fully recharged to the related company.

Equipment to be "In Use" on Electing for Cash Payout ("In-Use" Condition)

From YA 2016, businesses need to show that the equipment is in use by the business at the point of electing for cash payout to qualify for cash payout on PIC IT and Automation Equipment.

This condition reinforces the objective of encouraging businesses to increase their productivity by using automation equipment.

For businesses with genuine cashflow difficulties and who are not able to secure the delivery of the equipment before payment is made, IRAS may waive the requirement for the equipment to be "in use" on a case-by-case basis, subject to conditions.

Points to Note when Applying for Cash Payout

Once the qualifying expenditure is converted to cash, it cannot be claimed as tax deductions/allowances.

Election to convert qualifying expenditure to cash is irrevocable.

The minimum qualifying expenditure for each application is $400.

The qualifying expenditure to be converted to cash is the expenditure amount minus the grant or subsidy by the Government or any statutory board.

If you apply for PIC cash payout via the e-Service, you will receive an instant acknowledgement if the application is transmitted to IRAS successfully. Hence there is no need to contact IRAS to ascertain if IRAS has received your application.

IRAS strives to distribute the cash payout within three months of receiving your complete application. In most cases, IRAS processes the applications within six weeks .If necessary, please check your application status via the PIC cash payout e-Service - this is the quickest and most convenient way, as you will be able to access the e-Service anytime.

Measures To Curb PIC Abuse

IRAS takes a serious view of any non-compliance or abuse of the scheme. Offenders convicted of PIC fraud will have to pay a penalty of up to four times the amount of cash payout fraudulently obtained, and a fine of up to $50,000 and/or face imprisonment of up to five years. This includes any person who wilfully assists another person to obtain a cash payout or PIC bonus which he is not entitled to.

Anti-Abuse Measures

IRAS has come across business arrangements aimed at artificially creating or inflating PIC claims. While such cases make up a minority of PIC claims, the following anti-abuse measures have been introduced to target abusive arrangements and intermediaries that promote or facilitate such arrangements:

Deny PIC benefits arising from abusive arrangements as follows:

Description of Abusive Arrangement

Amount of PIC Benefits Disallowed

It consists of or uses artificial, contrived or fraudulent means.

That part of PIC benefits arising from the use of the artificial, contrived or fraudulent means.

The amount paid for the goods/ services exceeds their open market value for no bona fide commercial reason.

PIC benefits computed based on the difference between the amount paid by the business and the open market value.

There is no bona fide commercial reason for entering into the arrangement.

Full amount of PIC benefits.

Impose penalties on intermediaries (including vendors and consultants) who know or have reasonable grounds to believe that the arrangements they are promoting are abusive PIC arrangements. Convicted offenders need to pay a fine of up to $10,000 and/or face imprisonment of up to three years.

A promoter of PIC arrangement is a person who:

Designs, facilitates, organises or manages that arrangement; or

Publishes, disseminates or communicates any information for the purpose of inducing or encouraging any other person to enter into the arrangement.

Examples of Abusive PIC Arrangements

IRAS adopts a commonsensical approach towards interpreting the law on the anti-abuse measures. When ascertaining whether an arrangement is abusive and/ or an offence has been committed, we will consider all relevant facts and circumstances and conduct in-depth investigations where necessary. Please refer to the following scenarios which, in our view, contain abusive features:

An individual who is not carrying out an active business takes the following action(s) to make PIC cash payout claims with IRAS:

Incorporate sole-proprietorships or companies with ACRA;

Make minimum/low CPF contributions for persons who are not employees, such as parents, siblings, friends or other persons. This is done so that they appear to be employees of the claimants for PIC claims when in fact no work was done or that the works which were purportedly done were not for bona fide commercial reason; and/or

Sign agreements with related/friendly parties to purchase items or services such as mobile apps or websites at inflated prices.

The claims will be disallowed as the PIC arrangements are abusive. The actions are contrived, overvalued and put in place so as to make PIC cash payout claims without bona fide commercial reason. IRAS will consider whether these claims should be subject to criminal investigations.

In some abusive PIC arrangements, a group of individual sets up multiple businesses and sells PIC-qualifying products or services among them typically at inflated prices. There is no bona fide commercial reason for such sales aside from obtaining a PIC cash payout.
Such an arrangement may include the following:

Two individuals arrange to set up a company each, Company A and Company B. Both companies provide identical services (e.g. training).

Company A engages Company B to conduct training to Company A's employees for $15,000; while Company B also engages Company A to conduct similar training to their employees for $15,000.

The cost for delivering both sets of training is negligible since the companies could have provided the training services to their own employees.

Companies A and B both seek to benefit from PIC cash payouts and bonus of $24,000 each. The claims will be disallowed as the PIC arrangements are abusive. Aside from deriving PIC cash payouts, there is no bona fide commercial reason for the arrangements. IRAS will consider whether these claims should be subject to criminal investigations.

An individual sets up many companies. These companies derive minimal revenues, but would each incur PIC qualifying expenditure that is disproportionate to their revenue (e.g. ten times the revenue) and claim PIC cash payouts and bonus. For example:

A director sets up Companies X, Y, and Z to sell baby products through mail order - Company X sells clothes, Company Y sells toys and Company Z sells diapers.

All companies derived $1,000 in sales in the relevant period.

All companies engaged an e-commerce vendor to develop a website and inventory management system for each of the companies. Each company incurred $15,000 on the software.

All companies would claim PIC cash payouts and bonus of $24,000 each. The net receipt of the companies would be $9,000 each after subtracting $15,000 paid to the software vendor.

In participating in this arrangement, the director of Companies X, Y, and Z would benefit $27,000 in total.

The claims will be disallowed as the PIC arrangements are abusive. Apart from the purpose of obtaining PIC cash payouts, there is no bona fide commercial reason to incur such disproportionate expenditure and to duplicate three sets of website and inventory management software for this scale of business activity. IRAS will also consider whether these claims should be subject to criminal investigations.

Please note that failure to give notice of chargeability is an offence under Section 94A of the Income Tax Act. However, if you have not done so and would like to apply for a cash payout, please submit this form together with the PIC cash payout application form to avoid any delay in the processing of the cash payout.

No. PIC cash payout is given on qualifying expenditure incurred during the basis period of the YA and business must fulfill the three-local-employee condition during the relevant month(s) of the YA.

For example, if the business has only two local employees in YA 2014 during which the qualifying expenditure was incurred, it will not be eligible for cash payout. If your business subsequently has three local employees in the relevant month(s) in YA 2015, it can claim cash payout on qualifying expenditure incurred in YA 2015. However, it cannot claim cash payout for the YA 2014 expenditure. The business may instead claim enhanced tax deductions/allowances in YA 2014 on the qualifying expenditure incurred in YA 2014.

Both full-time and part-time employees who are Singapore Citizens and Singapore Permanent Residents will be considered when determining the number of qualifying local employees.

The following groups of people are excluded when determining the number of qualifying employees for the purpose of cash payout:

Self-employed (this includes a sole-proprietor and partner under contract of service)

Shareholder who is also a Director of the company (as defined in Section 4(1) of the Companies Act)

However, do note that a business will not qualify for PIC cash payout if the individuals are "employed" just for headcount purposes in claiming PIC cash payout, regardless of whether that individual is "employed" on a full-time or part-time basis from the business' perspective. See FAQ below.

No, a company will not qualify for PIC cash payout if "employees" are "employed" just for headcount purposes in claiming PIC. There must be a genuine employer-employee relationship that was entered into for bona fide commercial reasons.

An example of a bona fide employer-employee relationship is when a company hires two additional employees to work in a retail shop from Oct to Dec to cope with the spike in sales volume in those months.

IRAS will take enforcement action against individuals or companies engaged in false/fraudulent PIC cash payout claims.

No. You are self-employed and the owner of the business and thus cannot be considered as an employee of the business. The eligibility of a business to claim the cash payout is based on the number of employees who are not business owners.

Yes. However, please note that once you have converted qualifying expenditure into cash payout, the same expenditure is no longer available for PIC allowances/deductions to be claimed against your income.

Partial conversion is allowed for qualifying expenditure relating to leasing of PIC IT and Automation Equipment, licensing of qualifying IPRs, training, design project and research and development.

Partial conversion is not allowed for qualifying expenditure relating to purchase of PIC IT and Automation Equipment, registration and acquisition of IPRs.

For the purchase of PIC IT and Automation Equipment as well as the registration and acquisition of IPRs, you have to decide whether to claim the enhanced allowances/deductions under PIC or to convert such expenditure into a cash payout on a "per equipment", "per filing" or "per IPR" basis respectively subject to a cap of $100,000 for each YA (from YA 2013 to YA 2018). The excess expenditure on the same equipment/IPR exceeding the cap will be forfeited and will not qualify for tax allowances/ deductions against your income.

You can either claim $600,000 as capital allowance against your income or opt to convert the qualifying expenditure of $150,000 into a cash payout.

The cash payout is computed at 60% of the qualifying expenditure (i.e. 60% x $150,000 = $90,000), subject to a cash payout cap of $60,000 for YA 2014.

You cannot make a partial conversion, i.e. you cannot apply for a cash payout on the $100,000 expenditure and claim the remaining $50,000 expenditure as capital allowance of $200,000 (400% x $50,000). If only $100,000 expenditure is converted to a cash payout, the remaining $50,000 expenditure will be forfeited.

Conversion of qualifying expenditure into a cash payout on a "per equipment" basis does not apply to lease payments for PIC IT and Automation Equipment.

Businesses can opt for cash payout on assets purchased under HP agreements signed during the basis period for YA 2012 to YA 2018, with repayment schedule straddling two or more financial years.

The expenditure conversion cap and cash payout rate to be applied is determined based on the YA relating to the period in which the HP agreement is signed. For example, the cash payout rate for a HP agreement signed during the period relating to YA 2012 is 30%. The amount of cash payout for each YA will be computed based on the principal amount paid during the basis period for that YA, even if the repayment schedule extends beyond the period for the last qualifying YA (i.e. YA 2018).

To qualify for cash payout, the business must contribute CPF on the payroll of at least three local employees:

For YA 2016 to YA 2018 - for all three months in the quarter or last three months of the combined consecutive quarters in which the hire purchase agreement is signed.

For YA 2013 to YA 2015 - in the last month of the quarter or combined consecutive quarters in which the hire purchase agreement is signed.

For YA 2012 - in the last month of the basis period in which the hire purchase agreement is signed.

If you are claiming cash payout on PIC IT & Automation Equipment acquired under a hire-purchase agreement entered into during the basis period for YA 2013 to YA 2018, please submit the completed Hire-Purchase Template (296KB) together with your PIC Cash Payout Application Form.

For YA 2011

The cash payout option is not available for assets purchased under HP agreements (with repayment schedule straddling two or more basis periods) signed during the basis period for YA 2011.

Group 2 – Applying for Cash Payout

From YA 2013, businesses can apply for cash payout on a quarterly or combined consecutive quarters basis. This means that you can apply for cash payout by submitting the PIC Cash Payout Application Form any time after the end of your financial quarter(s), but not later than the income tax return filing due date of the relevant YA (15 Apr for sole-proprietorship and partnership; 30 Nov for company).

In this case, as your financial year ends on 31 Mar 2014, the financial quarters for YA 2015 are:

Quarter

From

To

Q1

Apr 2013

Jun 2013

Q2

Jul 2013

Sep 2013

Q3

Oct 2013

Dec 2013

Q4

Jan 2014

Mar 2014

You can submit the application for cash payout after the end of each quarter i.e.:

Q1: Submit in Jul 2013

Q2: Submit in Oct 2013

Q3: Submit in Jan 2014

Q4: Submit in Apr 2014

You can also combine consecutive quarters for your cash payout application, for example, combine Q1 and Q2 and submit one application in Oct 2013, after Q2 has ended.

The due date to submit the application(s) for cash payout is 15 Apr 2015 for sole-proprietorship and partnership; and 30 Nov 2015 for company.

If your claim for cash payout is approved, you will generally receive the cash payout within three months of receipt of the duly completed PIC Cash Payout Application Form. For instance, if you are claiming cash payout on qualifying expenditure incurred in Q4 (financial quarter from Jan 2014 to Mar 2014) and have submitted the Cash Payout Application Form on 15 Apr 2014, the cash payout will generally be made by IRAS by 15 Jul 2014 if your claim is approved.

You can re-submit the cash payout application form for the same quarter i.e. Oct 2013 to Dec 2013 quarter.

In the form, you should only include claims for the new item i.e. Item 3 and not Items 1 and 2, which were previously approved. Please note that penalties may be imposed on duplicate claims made.

Alternatively, you can include the claim for Item 3 together with your claim for a subsequent quarter in the same financial year provided you have met the three-local-employee condition for that subsequent quarter.

You do not need to submit the PIC Cash Payout Application Form together with your company's ECI. If you are claiming the enhanced tax deductions or allowances under PIC, the claim should be made in the tax computation for the relevant YA.

ECI has to be submitted within three months from the company's financial year end.

Group 3 – For Sole-Proprietorships

A sole-proprietor is only required to submit one PIC Cash Payout Application Form for the multiple sole-proprietorships that have incurred qualifying expenditure. Please submit the claim form and the relevant annexes after the financial period of all the businesses have ended.

From YA 2013, businesses can apply for cash payout on a quarterly or combined consecutive quarters basis. The PIC Cash Payout Application Form can be submitted after the end of any financial quarter(s) in the business' financial year, but not later than the income tax return filing due date of the relevant YA (15 Apr for sole-proprietorship and partnership).

You only need to submit one claim form for all your sole-proprietorships as the cash payout is capped at the sole-proprietor level. However separate annexes for claims relating to each individual sole-proprietorship need to be submitted together with the claim form.

For the purpose of claiming cash payout, you are required to submit certified statement of accounts by the income tax filing due date of 15 Apr. This is regardless of whether the revenue of the business is less than $500,000.

However, from YA 2013, sole-proprietorships and partnerships opting for cash payout no longer need to submit certified statements of accounts together with their income tax returns.

The sole-proprietorship business has to fulfil the three-local-employee condition in order to qualify for the PIC cash payout. This is because the sole-proprietorship incurred the PIC qualifying expenditure and as such, it needs to fulfil the three-local-employee condition in order to qualify for PIC cash payout.

For instructions on how to complete the PIC cash payout application form for this scenario, please refer to slide three of our User Guide .

The cash payout is paid to the business which incurred the qualifying expenditure. You can expect the cash payout to be credited into your existing GIRO account (according to IRAS' records) or receive a cheque otherwise.

If you have received the payment via cheque, please deposit it into your bank account within three months from the date of the cheque.

Group 5 – Recovery of Cash Payout

You are required to own the automation equipment and/or IPRs for which the cash payout has been made, for at least one year from the date of acquisition of the automation equipment; or acquisition of the IPR; or filing of the IPR (whichever is applicable).

Under certain circumstances, if you dispose of your automation equipment within one year, you do not have to repay the cash payout. For more details, please refer to our FAQs on Productivity & Innovation Credit (Acquisition or Leasing of PIC IT & Automation Equipment).

If you lease/dispose of your acquired IPRs within two to five years, you will need to repay the cash payout proportionately.

Cash payout will also be recovered if your design project submitted to DSg is not approved.

You need to inform IRAS within 30 days from the date you lease/dispose the automation equipment and/or IPRs. You are also required to repay the cash payout within 30 days of IRAS' Productivity & Innovation Credit Cash Payout Recovery notice.

For acquired IPRs disposed within a year from the date of acquisition of the IPR, the full amount of cash payout claimed will be recovered. For IPRs disposed within two to five years from the date of acquisition of the IPR, the amount of cash payout to be recovered will be apportioned as follows:

Amount to be recovered = [(5 - No. of complete years which the IPR was held) / 5] x cash payout

Besides the recovery of cash payout, no penalty will be imposed if you inform IRAS of the disposal within 30 days from the date the equipment is disposed. However, penalties will be imposed for late notification, non-compliance or fraud.